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The “How” is as Important as the “Decision”

The “How” is as Important as the “Decision”

February 13, 2012

It had been thought that the principles relating to the
application of natural justice to adjudicators’ decisions were well
settled and that adjudicators would apply them. However, two recent
decisions have highlighted that notwithstanding some improvement in
the decision making of adjudicators, they can still be prone to
indulging in “frolics of their own”, which can render their
decisions unenforceable.

The proposition of natural justice itself is well settled in
adjudication. Natural justice requires that every party has a right
to a fair hearing by an impartial tribunal. If an adjudicator acts
contrary to the rules of natural justice, his decision will not be
enforced. In particular, if the adjudicator takes into account
material that was not before the parties or applies his own
knowledge and experience to a dispute before him then he may be in
breach of the rules of natural justice. This could be the case if
the breach is material and he does not provide the parties with an
opportunity to comment on his approach.

In Herbosch-Kiere Marine Contractors Limited v. Dover
Harbour Board [2012], a decision of the Technology and
Construction Court (TCC), Akenhead J found that an adjudicator had
breached the rules of natural justice when he used a method to
assess the sum due to the contractor pursuant to his final account
that neither party had put to him and upon which they had been
given no opportunity to comment.

The adjudicator’s approach was consistent with his use of his
own experience and knowledge. However, in response to a submission
that the adjudicator could not be criticised for reaching a
decision that was wrong either in fact or law, the TCC commented
that:

“What [the adjudicator] can be criticised for is
deciding something not only on a basis which was not argued in the
adjudication proceedings but also without giving either party the
opportunity to address the point.”

The TCC found that the
adjudicator’s methodology had a clear and material financial effect
on the decision and, as such, the decision should not be
enforced.

This case can be compared to the recent Scottish authority of
Highlands and Islands Authority Ltd v. Shetland Islands
Council [2012], which is a decision of the Outer House of the
Court of Session.

The Highlands and Islands Authority Ltd (the Employer) employed
Shetlands Islands Council (the Professional Consultant) under an
NEC Professional Services Contract for it to provide design,
planning, construction, supervision and other services relating to
a runway extension to an airport on Shetland Islands. The dispute
that arose between the parties concerned defects in the runway and
whether they arose out of the Professional Consultant’s breach of
contract.

In this case, the adjudicator contacted Leading Counsel to
confirm his understanding of a contractual provision with which he
was not familiar. This contractual provision was central to
answering the question of what damages the Employer was entitled
to. His first attempts to do so failed as the Leading Counsel he
approached had a conflict of interest. His second attempt was by
way of a telephone call to another Leading Counsel, Mr Currie
QC.

No fee was paid by the adjudicator and the telephone call lasted
a few minutes. The adjudicator did not disclose the fact he had
spoken to Mr Currie QC to the parties, nor did he raise any
concerns he had with the clause upon which he sought Leading
Counsel’s view. In the subsequent proceedings relating to the
enforcement of his decision, the adjudicator denied any oral advice
had been given and insisted the conversation merely confirmed the
view he had reached on the effect of the relevant clause.

The adjudicator’s decision was that a sum of approximately £2
million should be paid by the Professional Consultant to the
Employer.

The Professional Consultant argued that, although the
adjudicator did not pay for the advice of Mr Currie QC, it was
normally the kind of advice that would be paid for. The fact the
adjudicator said that he had already formed a view on the relevant
contractual provision was irrelevant as it cannot have been his
“final” view. If it had been, there would have been no need to
approach Mr Currie QC. The Professional Consultant argued that by
not informing the parties of his concerns about the relevant
contractual provision and by denying the parties an opportunity to
address him on those concerns, the adjudicator breached the rules
of natural justice.

The Employer argued that the breach was not material and that,
although the adjudicator’s behaviour was not ideal, it did not
constitute a breach of the rules of natural justice.

The Court decided that, even though the advice had been given
informally and for free, it nonetheless constituted legal advice.
The adjudicator may have formed his own view as to the meaning of
the relevant provision but he was obliged to inform the parties and
give them an opportunity to make submissions to him. Consequently,
he had allowed “an opportunity for injustice to be done”.
The matter on which Leading Counsel’s advice was sought was clearly
central to the dispute on which the adjudicator was asked to
decide. As such it could not have been said to be immaterial.
The issue was not peripheral or irrelevant.

Both of these cases raise important issues as to how
adjudicators go about reaching their decisions. These follow on
from Lanes Group Plc v. Galliford Try Infrastructure
Limited [2011] where the Court of Appeal held there was
nothing objectionable to the adjudicator setting out his
provisional views in a document entitled “Preliminary views”
despite it using words such as “I find” and “I hold”.

Prior to Lanes, the anecdotal evidence suggested
that adjudicators refrained from issuing preliminary view documents
in case they were accused of predetermining the issues referred to
them. Given the findings in Herbosch-Kiere and, in
particular, Highlands, the question is now whether
adjudicators will start issuing these documents as a matter of
course to avoid natural justice arguments affecting the
enforceability of their decisions and to ensure that the parties
have an opportunity to address them on every matter they consider
relevant.

Although such an approach would address the failings of the
adjudicator in Herbosch-Kiere, it would still be almost
impossible to legislate against the informal advice adjudicators
obtain either from their colleagues or from their peers. In
Highlands, the adjudicator did not consider he took legal
advice and therefore presumably would not have included it in a
“preliminary view” document. Is this a case where the adjudicator
got caught doing what other adjudicators do regularly or do the
parties need to do something further to protect themselves?

One such way may be to ask adjudicators to confirm they reached
their decisions on their own and without the input of others.
However, in my view this may just be opening Pandora’s box and be
another step down the path of taking adjudication to somewhere it
was never meant to go.

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